PRIPPS and KID compliant ETFs for European investors

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U.S. based ETFs are still unavailable for E.U. based investors due to the PRIPPS/ KID regulation discussed in the previous note. In this article we will list some alternative European based ETFs that could be used to follow a few of the Logical Investment strategies.

So far the alternative ways to trade LI strategies as a EU citizen are:

A. Try to qualify for professional status with your broker under MiFID II rules. Guidelines may differ amongst brokers.

The Client declares to fulfil 2 out of the 3 conditions set forth below.
– Carrying out transactions, in significant size, at an average frequency of
10 transactions per quarter over the previous four quarters;
-T he size of the portfolio exceeds EUR 500,000, whereas portfolio is defined as
including cash deposits and financial instruments;
– To work or have worked in the financial sector for at least one year in a professional
position, which requires knowledge of the transactions to be entered into.

B. Use CFDs to trade the equivalent ETFs.

Downside is cost of borrowing which may eat into long term profits. Upside is you can leverage your position.

C. Use E.U. based equivalent ETFs.

Here is a list of some useful ETFs trading at the London exchange.

Original US ETFE.U. based EquivalentExchangeCurrencyFull Name
SPYCSSPXLSEETFUSDISHARES CORE S&P 500
TLTIDTLLSEETFUSDISHARES USD TRES 20PLUS YR
PCYIEMBLSEETFUSDISHARES JPM USD EM BND USD D
JNKIHYULSEETFUSDISHARES USD HY CORP USD DIST
TIPIDTPLSEETFUSDISHARES USD TIPS
AGGIUAGLSEETFUSDISHARES US AGG BND USD DIST
GLDIGLNLSEUSDISHARES PHYSICAL GOLD ETC

D. Use options or Futures

This is possible for our UIS and GLD-USD strategies. Using Futures may not be viable for smaller accounts.

Using options one may sell SPY and TLT puts (or buy calls) in similar proportions to UIS allocations which would result to a similar position as being long SPY and TLT. We do not recommend this solution since any medium to large movement in SPY or TLT will change the deltas and shift the weights out of proportion. The position will need to be followed closely and rebalanced accordingly.

There may be other ways to get around this problem like setting up a offshore company/Fund. Feel free to contribute your own experience/info.

For people interested to use Xetra Frankfurt listed ETFs : http://www.xetra.com/blob/1193366/4871305f6013a06db7de3bb5b952d79e/data/etfs-etcs-etns-all-tradable-instruments.xls

Another screener for UK based ETFs: https://www.justetf.com/uk/find-etf.html?groupField=none&sortField=fundSize&sortOrder=desc

Many thanks to Johannes, Fabio, StefanM for sharing info with us.

2018-07-07T10:35:33+00:00 By |0 Comments

About the Author:

Vangelis has been involved in quantitative research and development since 2007. He blogs under the 'Sanz Prophet' alias. He has built, run and tested literally thousands of trading systems using Matlab, Python, C#, QuantShare and Amibroker and has contributed as a researcher/programmer in academic papers. His quantitative blog has been part of the “Whole Street” quant blog aggregator since inception. He holds a B.A. in Economics & Theater Arts from Cornell University and an M.F.A. in Motion Picture Producing from the Peter Stark Program at the University of Southern California.Before entering the financial world Vangelis worked as a film and commercial director and collaborated with agencies such as Bold Oglivy, Adel Saatchi and Saatchi and clients including Pepsico, P. & G., Hyundai and others.

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